Gold News

Gold Price Sinks as Dollar Surges, Burns Hottest Bull Bets Since Lehmans

GOLD PRICES sank against a rising US Dollar on Tuesday, with UK and US bullion traders returning from a long holiday weekend to see the metal hit $1186 per ounce – more than 1.6% below last Friday's finish.
 
European and US stock markets lost over 1% as the single Euro currency fell to its lowest Dollar value since late April after press reports said Greek finance minister Varoufakis was today called "a hindrance" to resolving Athens' debt bail-out by Eurogroup chief Jean-Claude Juncker.
 
Greek bond yields jumped to 11.4%, and Spanish yields also jumped following the weekend's strong poll results for the socialist Podemos Party.
 
New US data showed home sales, consumer confidence and manufacturing activity all coming in better than analysts forecast.
 
Commodity prices sank, with crude oil losing 3% and more against the Dollar.
 
"The next big data release from the US or the next confirmation of an interest rate hike, whenever that will come, I think that's when we are going to see the final washout in gold," Reuters quotes Mitsubishi Corp's precious metals strategist Jonathan Butler in London.
 
"Last Friday's CPI [inflation] release proved a bit of a shocker for the market," says currency strategist Steven Barrow at ICBC Standard Bank. Because "with the Fed readying for tighter policy, [even] tenths of a percent have a real significance."
 
"There is so much importance given to the first move," said Fed vice-chair Stanley Fischer in a speech today in Israel. " But I think it's misleading," he added, with the bigger issue being the 3.25% to 4% level likely to be reached by short-term US rates over the next 3-4 years according to Fed projections.
 
"Unlike the Fed," writes INTL FCStone analyst Edward Meir, "other central banks are in full 'easing mode' and are even contemplating expanding their stimulus, as is the case for China.
 
"All this should be, in theory, bullish for gold, but the precious metal has to contend with the offsetting bearish variable of a stronger Dollar."
 
Latest data from US regulator the CFTC showed speculative traders in gold futures and options growing their net bullish position in the week-to-last-Tuesday by some 57% – the fastest week-over-week jump since gold prices recovered from a big sell-off, and turned sharply higher, in November 2008 following the Lehman Brothers' collapse.
 
Silver derivatives also saw speculators bet heavily on rising prices, growing their bullish position as a group – net of bearish contracts – to the greatest level since late January, when prices rose above last week's peak at $17.77 per ounce.
 
Today's silver drop cut the spot price well over 5% from there. Leveraged losses for futures and options traders will have been multiples greater.
 
Gold prices today traded almost 4% below the 3-month highs reached just before the latest CFTC data were taken.

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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